Vehicle Equity Explained: Why Down Payments Matter
By Derek Langhorn | National Dealer Development Manager | Rossi Financial
A good vehicle sale is not just about getting the customer approved today. It is about helping them stay in a good financial position tomorrow.
Having spent years in automotive sales and now working with dealerships across Canada, I understand how important it is to get a deal approved. However, I also believe that understanding vehicle equity can help dealers structure better deals and build stronger ongoing customer relationships.
What Is Vehicle Equity?
Vehicle equity is the difference between what a vehicle is worth today and how much money is still owed on it.
For example, if a vehicle is worth $15,000 and the customer owes $10,000, they have $5,000 in positive equity. If they owe $17,000 on that same vehicle, they have $2,000 in negative equity.
Negative equity can make it difficult for customers to sell or trade their vehicle without bringing additional money to the transaction. If that get writing off with negative equity that can be a real problem and they still owe money,
A Simple $15,000 SUV Example
Imagine your customer purchases a used SUV worth $15,000 today. After one year, that SUV might be worth approximately $13,000, depending on its age, mileage, condition and market demand.
Without a Down Payment
Vehicle price: $15,000
Amount financed: $15,000
With a $4,500 Down Payment
Vehicle price: $15,000
Customer down payment: $4,500
Amount financed: $10,500
The customer starts with $4,500 less debt.
This simplified example excludes taxes, fees, interest and additional products. Actual vehicle values and loan balances will vary.
Both customers will make payments during the year. However, the customer who made a down payment started with a smaller loan, reducing the risk of owing more than the vehicle is worth later.
Why Does Rossi Financial Require Money Down?
Rossi Financial is an equity lender. This means we consider the value of the vehicle, the amount being financed and the customer’s financial situation when reviewing a deal.
A suitable down payment helps reduce the loan balance and protects the equity position. It can also help customers avoid carrying a large amount of negative equity into their next vehicle purchase.
Dealer fees, taxes, warranties and other products can increase the total amount financed. Additional money down may be needed to maintain a suitable equity position.
Our down payment guidelines depend on the customer’s credit, the vehicle and the overall deal structure.
How This Helps Dealers Sell More Cars
Customers sometimes see a down payment as an obstacle. I encourage dealers to explain it as a financial benefit instead.
A smaller loan can mean lower payments, less interest paid over time and a better position when the customer is ready to trade or sell their vehicle.
Here is a simple way to explain it to your customer:
“Your down payment helps keep your loan smaller. This reduces the chance of owing more than your vehicle is worth later.”
A customer who understands the benefits of the financing structure is better prepared to make a confident buying decision.
Let’s Structure Your Next Deal Together
As your National Dealer Development Manager, I am here to help you understand our equity finance programs and help you structure deals before you submit.
If you have a customer with credit challenges, an older vehicle or questions about the required down payment, reach out. A short conversation can often help identify a better way to structure the deal.
Derek Langhorn
National Dealer Development Manager
Rossi Financial Inc.
derek@rossifinancial.ca
226-387-7227
This article is for dealer education. Vehicle values and financing examples are estimates only. All applications are subject to Rossi Financial’s lending guidelines and underwriting approval.
